Has Coeur d'Alene Mines Become the Perfect Stock?

Finding companies that have all the right stuff can produce winners.

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Coeur d'Alene Mines(NYSE: CDE) fits the bill.

The quest for perfectionStocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.

Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.

Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.

Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.

Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.

Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Coeur d'Alene Mines.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-Year Annual Revenue Growth > 15%

35.8%

Pass

1-Year Revenue Growth > 12%

63.7%

Pass

Margins

Gross Margin > 35%

57.4%

Pass

Net Margin > 15%

8.3%

Fail

Balance Sheet

Debt to Equity < 50%

6.8%

Pass

Current Ratio > 1.3

1.77

Pass

Opportunities

Return on Equity > 15%

4.0%

Fail

Valuation

Normalized P/E < 20

12.19

Pass

Dividends

Current Yield > 2%

0%

Fail

5-Year Dividend Growth > 10%

0%

Fail

Total Score

6 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Coeur d'Alene Mines last year, the company has picked up a point. Returning to profitability was the key component of the miner's success in the past year, but the stock's recent plunge raises concerns about whether the big bull market in precious metals may be coming to an end.

Most recently, Coeur d'Alene reported strong earnings for its first quarter, with an 11% rise in adjusted profits. Yet one area where Coeur d'Alene is falling behind is in its lack of dividend. By contrast, rival Hecla Mining(NYSE: HL) started paying a dividend tied to average silver prices. Still, with Coeur d'Alene having just gotten out of the red, a conservative approach toward dividends makes a degree of sense.

The recent drop in silver prices has raised concerns throughout the industry, with Coeur d'Alene far from the only mining stock to suffer a huge drop in value. Nevertheless, until precious metals prices stabilize, investors may well remain reluctant to buy shares of Coeur d'Alene.

For Coeur d'Alene to keep improving, it needs to keep boosting its profit margins and look to minimize costs. In the long run, when it makes sense to pay a dividend, Coeur d'Alene could well find itself a lot closer to perfection in the years ahead.

Keep searchingNo stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

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Author

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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